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[2014] ZALCJHB 199
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Swanepoel and Others v Leica Geosystems AG and Others (J2454/14) [2014] ZALCJHB 199; (2014) 35 ILJ 2877 (LC) (4 June 2014)
IN
THE LABOUR COURT OF SOUTH AFRICA
HELD AT JOHANNESBURG
REPORTABLE
CASE NO J 2454/14
In
the matter between:
JAN HENDRIK
SWANEPOEL
First
Applicant
PERSONS LISTED IN
ANNEXURE A Second
to further Applicants
and
LEICA GEOSYSTEMS AG
First
Respondent
ACIEL
GEOMATICS (PTY) LTD
Second
Respondent
GEOSYSTEMS AFRICA
(PTY)
LTD Third
respondent
Application heard: 27
May 2014
Judgment delivered:
4 June 2014
Summary:
Application of s 197 of the LRA in circumstances where a
non-exclusive agency and distribution agreement is terminated.
While
s 197 is potentially applicable where such an agreement is cancelled
and another agent appointed, in the present instance,
there was no
‘transfer’ for the purposes of s 197, if only because on
the date contended to be the date of transfer,
no elements of what
was alleged to be the transferor employer’s business
transferred to the transferee. On the facts, what
occurred was the
failure of the business of a competitor, leaving the party contended
to be the transferee employer as the sole
agent.
JUDGMENT
VAN NIEKERK J
Introduction
[1]
The applicants were employed by the third respondent (GSA). They seek
a declaratory order to the effect that s 197(2) of the
Labour
Relations Act (LRA) applies to a transaction in terms of which the
first respondent (Leica) terminated a non-exclusive agency
and
distribution agreement with GSA in circumstances where another party,
the second respondent (Aciel), had been granted the same
rights to
agency distribution in competition with GSA. Should s 197 apply,
Aciel would by virtue of s 197 (3) be substituted for
GSA as the
applicants’ employer. Indeed, the declaratory relief that the
applicants seek is that with effect from 1 November
2013 (being the
day after the agreement between Leica and GSA terminated), their
employment contracts transferred from GSA to Aciel,
on the same terms
and conditions.
[2]
The application initially came before court on 7 November 2013 as an
urgent application. On 22 November 2013, the application
was struck
from the roll for lack of urgency. In addition to the sets of
affidavits filed for the purposes of the urgent application,
on 20
March 2014, GSA filed a supplementary affidavit. On 8 April 2014,
Aciel filed an answering affidavit and on 10 April 2014,
GSA filed a
reply. On 16 April 2014, counsel for the applicants and for GSA were
respectively notified that Aciel would object
to the application
being heard and decided on the basis of the affidavits filed by GSA,
and that it would object to GSA claiming
the relief which is claimed
in the applicants’ notice of motion when GSA has failed to
intervene as an applicant. The application
was thereafter heard in
the ordinary course, with the papers supplemented as indicated.
The
status of GSA’s affidavits
[3]
I deal first with the issue of the status of GSA’s affidavits
and its claim for relief. Aciel submits that in terms of
practice in
motion proceedings, it is incumbent on an applicant to make out its
case in the founding affidavit which constitutes
both the particulars
of claim and the evidence in support of the relief that is sought. It
follows, so it was submitted, that a
respondent against whom relief
is sought is obliged only to deal with the case in an applicant’s
founding affidavit. The
rule ordinarily applicable is that
established in
Plascon
Evans
,
[1]
to the effect that an applicant can only succeed on the basis of the
facts deposed to in its founding affidavit which are not disputed
in
the respondent’s answering affidavit, read with additional
facts deposed to in the respondent’s answering affidavit.
Since
a respondent is obliged in its answering affidavit to deal with the
case made out in the founding affidavit and no other,
it follows that
a respondent is not obliged to deal with allegations made in a
co-respondent’s affidavits which may happen
to support the
applicant’s case, if only because there is no
lis
between respondent and its co-respondent.
[4]
Mr. Watt-Pringle SC, who appeared on behalf of Aciel, submitted that
having been cited as a respondent, GSA had three options.
First, it
was entitled to oppose the relief sought in which event it was
entitled to file an answering affidavit refuting the applicant’s
case. Secondly, it could have elected not to oppose the application
but to abide by the relief sought. Thirdly, GSA could have
decided,
if it was not content to have the applicants make out a case for the
application of s 197, to be joined as a second applicant
in order to
make out its own case. In the latter instance, Aciel would have filed
an answering affidavit to deal with the case
presented by GSA as an
applicant. What GSA was not permitted to do in the present
proceedings was to file an answering affidavit,
the sole purpose of
which was to build the case for the relief sought by the applicants
in their notice of motion, under the guise
of a respondent which had
elected not to join issue with Aciel.
[5]
On this basis, Mr. Watt-Pringle submitted that the applicants are not
entitled to rely in these proceedings on the untested
evidence
presented by GSA, since it formed no part of the founding affidavit
and therefore no part of their case. Further, he submitted
that GSA’s
counsel is not entitled to claim in argument on behalf of GSA the
relief sought by the applicants in their notice
of motion. In other
words, GSA is not permitted to assume the role of a Trojan horse,
acting in every way as if it is a co-applicant
without claiming any
relief in its own name, and thus seeking to avoid any liability for
costs.
[6]
Mr. Redding SC and Mr. Franklin SC (with him Mr. Boda), who appeared
for the applicants and GSA respectively, did not dispute
the validity
of the submission as a general proposition; their concern related
principally to the late stage at which the point
was raised. In
particular, they submitted that having acquiesced in the filing of an
answering affidavit by GSA and having argued
the urgent application
on that basis, it is not open to Aciel to challenge the applicants’
right to rely on the evidence
presented by GSA, nor is it open to
Aciel to challenge the right of GSA’s counsel to present
argument.
[7]
While parties are ordinarily bound to the Rules of this court, the
Rules are not an end in themselves and immune from more flexible
application where the interests of justice and fairness so require.
The court is entitled to exercise a discretion, on the basis
of the
facts of any particular case, and allow a departure from the
generally applicable rules relating to the filing of affidavits.
In
the present instance, until mid-April 2014, these proceedings were
conducted on the basis that GSA had filed an answering affidavit
that
broadly supported the applicants’ case. Indeed, Aciel filed a
replying affidavit and thereafter an answering affidavit
to GSA’s
supplementary affidavit filed in March 2013. GSA has not attempted,
at any stage of this litigation, to conceal
where its sympathies lie,
nor has it displayed any of the deceit or guile ordinarily associated
with a Trojan horse. To exclude
the affidavits filed by GSA and the
submission of its counsel, at this late stage and in the absence of
prior objection, would
in my view result in significant prejudice to
the applicants. For this reason, a strict application of the Rules in
this instance
must yield to considerations of justice and fairness,
and I intend therefore to have regard to the affidavits filed on
GSA’s
behalf and the submissions made by its counsel.
Factual
background
[8]
The material facts are not in dispute. Leica manufactures surveying
and measuring products, known as ‘geomatics’.
The
products are manufactured in Switzerland and distributed throughout
the world by distributors appointed by Leica. Distributors
are
responsible for pre and after sales services and are licensed for
this purpose. Leica provides a warranty on all products in
terms of
which repairs and replacements are carried out by local distributors.
Distributors are provided with tools, access to
data and software and
technical training.
[9]
In 2004, the sole authorised distributor and service provider of
Leica’s products in South Africa was Set Point Technologies
Ltd. During 2004, GSA acquired the business of Set Point as a going
concern and concluded distributorship and service partner agreements,
on a non-exclusive basis, with Leica. The parties accepted that s 197
applied to the transaction. GSA remained the sole distributor
and
service partner of the geomatics products until July or August 2011,
when Leica appointed Aciel as a distributor and service
partner, on a
non-exclusive basis and in competition with GSA. GSA became aware of
the appointment of Aciel during September 2011.
[10]
On 31 July 2013, Leica gave three months’ notice of termination
of the agreements with GSA. From 1 November 2013, GSA
was no longer
licensed to sell or provide services in respect of Leica products.
Events subsequent to the filing of the urgent
application disclose
that as a consequence of the termination, GSA’s business
effectively ceased and that of the applicants’
employment was
terminated.
[11]
At the time when the urgent application was filed, Aciel had employed
nine former employees of GSA, including area service
managers and key
sales representatives. Approximately 30% of Aciel’s current
workforce comprises former GSA employees. One
of the former GSA
employees, Van Heerden, is Aciel’s managing director.
[12]
To the extent that the applicants’ case is built on what GSA
contends to be a strategy to supplant GSA’s business
of
distributing and servicing Leica’s products in South Africa and
installing Aciel in its place, the case made out in the
founding
affidavit is to the effect that after Leica concluded a distribution
agreement with Aciel in July 2011, it implemented
a strategy of
subverting the business conducted by GSA and installing Aciel in its
place. The strategy, so the applicants contend,
is evidenced by a
meeting held in Milan in March 2011 when various options relating to
the sale and distribution of geomatics products
in South Africa was
discussed (some of these contemplated the termination of the
distribution arrangement with GSA), the signature
on 7 July 2011 by
Aciel of a distribution agreement with Leica, and the failure by
Leica to inform GSA of the fact that Aciel had
been appointed as a
distributor in South Africa until confronted by GSA in September
2011.
[13]
In short, the case that the applicants seek to make is that the most
likely inference to be drawn from the series of events
between March
and September 2011, is that Leica embarked on a staged process of
replacing GSA with Aciel. That staging was necessary
to enable Aciel
to build up its own business and to become sufficiently
well-established before Leica terminated GSA’s distribution
and
service agreements. The applicants allege now that the strategy has
been effected, Leica and Aciel wish to escape the consequences
of
what in effect was an acquisition of GSA’s business, i.e. to
avoid the effects of s 197.
[14]
The existence of any such strategy or conspiracy is denied by the
second respondent, albeit in terms that are bald and not
particularly
persuasive. However, in view of the conclusion to which I have come
on the legal principles to be applied, it is not
necessary for me to
decide whether the strategy alleged by the applicants was conceived
by Leica, or implemented in the terms that
they allege.
Applicable
principles
[15]
Section 197 reads as follows:
“
(1)
In this section and in section 197A –
(a)
‘
business’ includes the whole
or part of any business, trade, undertaking or service; and
(b)
‘
transfer’ means the transfer
of a business by one employer (“the old employer”) to
another employer (“the
new employer”) as a going concern.
(2)
If a transfer of a business takes place,
unless otherwise agreed in terms of sub-section (6) –
(a)
the new employer is automatically
substituted in the place of the old employer in respect of all
contracts of employment in existence
immediately before the date of
transfer;
(b)
all the rights and obligations between the
old employer and an employee at the time of transfer continue in
force as if there had
been rights and obligations between the new
employer and the employee;
(c)
anything done before the transfer by or in
relation to the old employer, including the dismissal of an employee
or the commission
of an unfair labour practice or act of unfair
discrimination, is considered to have been done by or in relation the
new employer;
and
(d)
the transfer does not interrupt and
employee’s continuity of employment, and an employee’s
contract of employment continues
with the new employer as if with the
old employer.”
[16]
It is now well established that the purpose of s 197 is to vary the
common law consequence of the transfer of a business as
a going
concern, thus giving expression to the constitutional right to fair
labour practices. Broadly speaking, the effect of s
197 is to
preserve the continuity of employment and terms and conditions of
those employees who are transferred to a new employer
when a transfer
as defined by s 197(1) takes place. This means that employees
employed by the old employer (the ‘transferor’)
when the
transfer takes effect automatically become employees of the new
employer (the ‘transferee’) on the same terms
and
conditions.
[17]
Three conditions must be met before s 197 is triggered, and all of
them must be met simultaneously. These are:
a.
a transfer;
b.
of a business (the transfer must be of the whole or part of a
business);
c.
as a going concern.
[18]
The application or otherwise of s 197 is not to be determined by the
label that parties attach to the transaction under scrutiny.
As
Jafta J stated in
Aviation Union of
South Africa & another v SA Airways (Pty) Ltd & others
(2011)
32
ILJ
2861 (CC) at paragraph [44] :
“
It
must be stressed that the event which brings s 197 into play is the
transfer of business as a going concern. The question whether
the
section applies to a particular case cannot be determined, as the
Supreme Court of Appeal did, with reference to the label
of the
transaction effecting transfer. The section does not cite
transactions to which it applies. Nor does it refer to any labels.
Instead, its application must always be determined with reference to
three requisites, namely, business, transfer and going concern.”
[19]
The definition of a ‘transfer’ in s 197(1) (b) sheds
little light on the kinds of transfers that potentially fall
within
the ambit of s 197. To suggest, as the definition does, that a
‘transfer’ is a transfer of a business as a going
concern, begs the question of what precisely constitutes a transfer
for the purposes of the section. The concept of a ‘transfer’
would appear to relate to the method of the transfer of a business,
rather than to the content of the business bundle that is in
fact
transferred. (See N Smit ‘The Labour Relations Act and Transfer
of Undertakings: The Notion of Transfer’ 2003
De Jure
328.)
[20]
The Constitutional Court has made it clear that the mere loss of a
contract to a competitor does not in itself indicate the
existence of
a transfer within the meaning of s 197; something more is required.
At the least some of the components that go to
make up the business
of the transferor employer must be transferred as a functioning going
concern.
[2]
In
Aviation
Union of South Africa
Jafta
J said the following:
‘
[47]
But whether a transfer as contemplated in s 197 has occurred or will
occur is a factual question. It
must be determined with reference to
the object effect of each case. Speaking generally, a termination of
a service contract and
the subsequent award of it to a third party
does not, in itself, constitute a transfer as envisaged in the
section. In those circumstances,
the service provider whose contract
has been terminated loses the contract but retains its business. The
service provider would
be free to offer the same service to other
clients with its workforce still intact.
[48]
For a transfer to be established there must be components of the
original business which are
passed onto the third party. These may be
in the form of assets or the taking over of workers who were assigned
to provide the
service. ‘
[21]
The existence of a transfer aside, whether or not a business is
transferred as a going concern is a separate enquiry which,
as the
jurisprudence indicates, is directed at the extent to which the
transferred business retains its identity after the transfer.
A
business is transferred as a going concern when it can be said that
the entity that is the subject of the transfer retains its
identity
after the transfer as indicated, amongst other things, by the fact
that its operation is continued or resumed.
[22]
In
PE Rack 4100 CC v Sanders & others
(2013) 34
ILJ
1477 (LAC), the Labour Appeal Court recently adopted an approach in
which the application or otherwise of s 197 was held to be
dependent
on the answers to two questions (at paragraph 14):
(i)
Does the transaction concerned create rights and obligations
that
require one entity to transfer something in favour of or for the
benefit of another or to another?
(ii)
If the answer to (i) is in the affirmative, does the obligation
imposed
within the transaction contemplate a transferor who has the
obligation to effect a transfer or allow transferred to happen and a
transferee who received the transfer? If the answer to this question
is in the affirmative, then the transaction constitutes a
transfer
for the purposes of s 197.
[23]
In that case, the business model under scrutiny was that established
by a franchise agreement. The LAC held that the termination
of a
franchise agreement and the appointment of a new franchisee did not
constitute a transfer of a business as a going concern
for the
purposes of s 197. It did so on the basis that a franchise agreement
gives rise, in effect, to a joint-venture business
between the
franchisor and franchisee. On termination of the franchise agreement,
the JV business dissolves, with the franchisor
retaining the assets.
The franchisee’s right to carry on the franchise business comes
to an end and concomitantly the business
of the franchisee comes to
an end (at paragraph 24). In the case of a change in franchisees, the
court held that as opposed to
a change in contractor in the
outsourcing of services - (a) there is no client in the
franchising context, it being a bilateral
and not a tripartite
relationship; (b) while the franchisor makes the use of assets
available to the new franchisee, it does
so after the first JV
business is dissolved and as part of the formation of an entirely new
and independent business with the new
franchisee; and (c) there is no
transfer of the use of the assets from the old to the new franchisee,
instead the use of the assets
is housed in an entirely new and
independent business (at paragraph 25).
What
this analysis would seem to indicate is that for s 197 to apply, the
underlying transaction must at least impose some requirement
on the
part of the transferor employer to transfer some element of its
business to the transferee.
[24]
In addition to a requirement that there be an underlying transaction
(which need not be an agreement between the transferor
and
transferee) which requires one entity to transfer something in favour
of or for the benefit of another which contemplates a
transferor who
has an obligation to effect a transfer and a transferee who has
received it, it seems to me that the section contemplates
a
transaction in which the date of the transfer is readily identifiable
i.e., the date on which the transaction is complete and
the
transferee employer takes unencumbered transfer.
[3]
This must necessarily be so, if only because the transfer date is the
date on which the transferee employer assumes all of the
employment-related rights and obligations of the transferor. The
absence of any agreed or specified transfer date is likely to
indicate the absence of any transfer for the purposes of s 197,
especially in circumstances where the facts do not themselves
disclose a transfer date with any degree of specificity.
Analysis
[25]
The authorities are clear that any enquiry into whether a particular
transaction attracts the provisions of s 197 entails an
objective
assessment of all of the relevant facts, regardless of the label that
the parties attach to their transaction and their
motives in
concluding it. In the present instance, it is not disputed that on 1
November 2013, which is contended by the applicants
to be the date of
the transfer, there was no takeover by Aciel of any of GSA’s
assets (either corporeal or incorporeal),
that no employees were
taken over by Aciel, and that there was no assignment or formal
transfer of customers from GSA to Aciel.
In these circumstances,
Aciel contends that this is not an instance where all or some of the
relevant components and elements which
might constitute a business
have been transferred by GSA to Aciel. Rather, the case concerns no
more than a termination by Leica
of one of its distribution
agreements with an agent and distributor in South Africa.
[26]
The jurisprudence referred to above requires an analysis of whether
the three elements that trigger the application of s 197
were present
as at the date of the transfer. The existence of the ‘business’
for the purposes of s 197 was not seriously
disputed. The definition
of ‘business’ in s 197(1) (a) extends to ‘
the
whole or part of a business, trade or undertaking, or service
’.
In the present instance, there was clearly a variety of components in
GSA’s hands that would ordinarily have served
to make up a
business. These included assets, goodwill, the workforce, management
staff, organisational and operational resources
and the like. To the
extent that the courts have adopted the wording of the test applied
in relation to European Community directives,
it is clear that the
business of GSA comprised an economic entity, at least in the form of
an organised grouping of persons and
assets facilitating the exercise
of an economic activity which pursues a specific objective.
[4]
[27]
Whether it can be said that there was a transfer of a business for
the purposes of s 197 is a rather more difficult question.
A primary
enquiry, as indicated by the LAC’s decision in
PE Rack 4100
CC,
is whether the appointment of Aciel and the termination of
GSA’s agency imposed some requirement on GSA to transfer the
whole
or part of its business to Aciel. The high watermark of the
applicant’s case is that since GSA’s sole business is the
distribution of Leica products and the provision of after-sales
services, Aciel is the only other entity capable of fulfilling
that
need and with effect from 1 November 2013, the date on which the
cancellation of the agreement as between Leica and GSA became
operative, GSA’s business will automatically devolve on Aciel.
On the evidence, this is not a foregone conclusion. First,
it is
common cause that there are competitive products to the Leica range
in the South African market. There is no evidence that
customers of
GSA will without more migrate to Aciel. Secondly, GSA was at all
material times aware that was a non-exclusive agent,
that its
agreement with Leica was terminable on notice and that it was
vulnerable to termination. Thirdly, since 1 November 2013,
the date
that the applicants contend to be the date of the transfer for the
purposes of s 197, there has been no transfer of any
identifiable
economic entity from GSA to Aciel. There is no evidence that on that
date, a single asset, tangible or intangible
or a single employee was
required by Aciel from GSA. The reality, as the evidence indicates,
is the failure of the business of
one competitor in an identifiable
market, leaving the other to become the
de facto
sole agent
and distributor. All that has occurred is that prior to 1 November
2013 there were two local distributors of Leica products
in South
Africa and after that date, there is one.
[28]
To employ the two-stage test adopted by the LAC in the
PE Rack
4100 CC
judgment referred to above, for there to be a transfer in
terms of s 197, it is incumbent on the applicants to demonstrate that
the transaction on which they rely created rights and obligations
that required GSA to transfer something in favour of or for the
benefit of Aciel. The transactions on which they rely are the
appointment of Aciel as Leica’s agent and distributor in South
Africa and the subsequent termination of Leica’s agreement with
GSA. On neither date, or at any stage in between (during
which GSA
and Aciel were both Leica distributors competing for the same
business), can it be said that any rights and obligations
were
created that required GSA to transfer anything to Aciel, for its
benefit or otherwise. While it is not in dispute that a number
of
employees elected to assume employment with Aciel after Aciel was
appointed an agent and distributor of Leica’s products,
and
that a number of customers elected to place their business with Aciel
rather than with GSA, none of this occurred out of any
right or
obligation on GSA to transfer anything to Aciel.
[29]
Finally, the applicants have failed to establish with any degree of
certainty the date of the transfer. As I have indicated,
this is an
important element of any transfer in terms of s 197, since it is on
the transfer date that a myriad of rights and obligations
are
transferred, with profound consequences for all concerned. In
essence, the applicants rely on a process which started in 2011
with
the appointment of Aciel as an agent and distributor, and which
culminated in the termination of GSA’s contract by Leica.
The
statement that the effective date of the termination of the agreement
constituted the date of the transfer, on the facts, is
no more than a
device of necessity. It was not a matter over which Aciel had any
control or played any part. As I have found, it
did not without more
result in any change to Aciel’s business or in the transfer or
acquisition of anything at all. For
the above reasons, in my
view, the application stands to be dismissed.
[30]
To the extent that the applicants rely on what they maintain to be a
conspiracy between Leica and Aciel or a strategy by Leica
to devolve
GSA’s business onto Aciel, for the reasons stated above, even
if that were true, it would be insufficient to trigger
the provisions
of s 197. The applicants have not produced any concrete evidence of
any deliberate attempt by Aciel to circumvent
or otherwise subvert
the provisions of s 197 and I am unable to find on the papers before
me that they are entitled to the relief
that they seek on this basis
alone, and regardless of any of the preconditions for the application
of s 197 having been met.
[31]
For the above reasons, in my view, there was no transfer of a
business for the purposes of s 197 consequent on the termination
of
the agency and distribution agreement as between Leica and GSA with
effect from 31 October 2013.
Costs
[32]
The court has a broad discretion in terms of s 162 of the LRA to make
orders for costs according to the requirements of the
law and
fairness. The court has traditionally been reluctant to make orders
for costs in circumstances where individual employees
seek to pursue
their rights, since they may be dissuaded from approaching the court
if costs were always to follow the result.
This case falls into that
category. In any event, the case raises a novel point and it cannot
be said that the claim was in any
way frivolous or vexatious.
I
make the following order:
1. The
application is dismissed.
ANDRÉ
VAN NIEKERK
JUDGE
OF THE LABOUR COURT
REPRESENTATION
For
the applicants: Adv. AIS Redding SC, instructed by Hogan Lovells SA
For
the second respondent: Adv. C Watt-Pringle SC, instructed by Madlela
Gwebu Mashamba Incorporated
For
the third respondent: Adv. A Franklin SC, with him Adv F Boda,
instructed by Norton Rose Fulbright
[1]
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
1984 (3) SA 623 (A).
[2]
S
ee
Fransmann Services v Simba (Pty) Ltd & another
(2013) 34
ILJ
897 (LC).
[3]
See
Business
& Design Software (Pty) Ltd v Van der Velde
(2009)
30
ILJ
1277
(LAC).
[4]
See
Suzen
v Zehnacker Gebaudereinigung GmbH Krankenhausservice
[1997]
IRLR 255
(ECJ).